For the first time in our 12 years of owning rental property we had eight tenant turnovers in 60 days. It’s highly unusual for us to have that many in a year, let alone in just over a month. The saying ‘when it rains, it pours’ wasn’t said because of water falling from the sky. (It was the inspiration for my Dad sharing his country music lyric wisdom about when your real estate business is stormy) And because 8 move outs wasn’t enough, these events all occurred at the exact same time as we were funding the due diligence and subsequent purchase of our first all commercial property – a smallish building that is home to a dental practice.
We always do work on the properties when tenants move out – especially if they have lived in the home for more than 2 years, which many of these folks had. Sometimes it’s as simple as a quick carpet replacement or a paint job. Other times it’s replacing windows, tackling a new furnace or a full interior paint job. Regardless, when a tenant moves out, unless it’s been only a year since we did work to the home, there’s always some money we spend to keep the property in excellent condition. Staying on top of the condition of the home ensures we attract and keep great tenants and that our property never gets run down which will ultimately costs a lot more to improve.
So it was an expensive and extremely busy August and September for us. We also had to make a few cash calls to some of our joint venture partners as a few of the homes needed work that was either a surprise or ahead of schedule so we didn’t have reserve funds to cover it. Most of our partners know that is part of the business and have no problem with the odd call for cash. One or two partners make it incredibly painful for us.
It’s the tougher side of investing in real estate. Homes need work. It’s why I’ve often argued that more homes isn’t necessarily better – it’s just more.
The whole experience reminded me that it’s probably time to emphasize the importance of multiple streams of income. We had cash available to cover these expenses but it was cash that had been earmarked for our own home and office renovations and repairs. If we hadn’t had cash available we’d have been super grateful that real estate wasn’t our only source of cash!
I’ve said this before, especially when I’ve talked about whether you want to become a full time real estate investor, but relying on buy and hold investments alone is not a good plan.
And while there are plenty of ways to make your income from real estate related activities, I would personally still recommend you create other streams outside the real estate space.
If you’re a realtor and the market goes down – not only does your own portfolio suffer but you’ll find yourself with seriously reduced income from sales as well. If you focus on flipping as a side business, what happens if you lose money on one or the market slows down so much that your property is losing value each month instead of gaining? How do you pay for that? The same goes for Rent to Own. Besides the other reasons rent to own investing can stink, when the market goes down, your tenants panic and walk away and new tenants are hard to come by. Plus you almost always find the home needs work you hadn’t planned for because the tenant hasn’t been doing the maintenance you would have done to keep the home in great condition (while rent to own tenants are much easier to manage, many don’t wan to spend money on the home until they officially own it so you may find they don’t tell you about the problems until they are moving out and now you have quite a few expenses you hadn’t planned for). So just like flipping and being a realtor, your rent to own business income can dry up fast if the market changes direction.
I think it’s wise to consider adding non real estate related income sources to your life as well.
My coaching clients are probably reading this thinking “Julie – how can you say this when your mantra with me is FOCUS”
First, let me be clear in saying I am not suggesting you start today creating 4 different streams of income. Trying to do four things at once is a recipe for getting nothing done …
My recommendation is that you start one today (and if you’re already investing in real estate – you have). Master it. Get it running smoothly – usually about 24 months – and then work on adding another stream. It could be related like a real estate license or (more ideally) it could be something unrelated but of interest.
With the first stream in place here are some other ways our clients have generated other streams of income beyond just their real estate portfolio, property management or becoming a realtor:
- Consult back to the company they used to work for or other companies in the same industry.
- Grow the family business or a business with their spouse that exists already but could grow with more effort.
- Become a lender – they act as the banks for some investors and make some awesome income on some of their cash without having any real estate related hassles.
- Start another business like contracting as a trade or some other somewhat related to real estate business that generates revenue outside of their portfolio performance but benefits from activities done to network as a real estate investor.
- Create an online business. There are many ways to make money online. You can sell ad space, post ads where you get paid per click, become an affiliate for a product or program you like and make a commission or joint venture with other people who offer complimentary services or products to what you do and split revenue generated, or you can offer your own products and services. We’ve done that with Rev N You and the model is one that would easily translate into any information driven business. The cool part about an online business is that it can go where you go. You don’t have to be there at 9am to open the store and you don’t have to have someone to take your place if you go on vacation.
There are so many ways to make an income. This is not even close to all your options – it’s just the ones we’ve worked with our clients on in the last 36 months.
Every single one takes effort and time, but it gives you more financial stability so you can comfortably handle surprise real estate expenses or the ups and downs of the market (more precisely – so you can handle the downs). If you’re just starting out as a real estate investor, stay focused on that. Get your systems in place and your team working well. Get comfortable doing deals and raising money (if you need to). Once you’ve got 3-5 deals under your belt, and you feel they went fairly smoothly then you can look at other ways to generate a new income stream.
It’s always better to plan for a day when you might need more income streams then try to scramble when you do need it.
“A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain.” ~ Mark Twain
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Image Credits: 1st Image: © Carbouval | Dreamstime.com 2nd Image: Julie Broad